America’s Fiscal Train Wreck and Cassandra’s Curse

Crossing administrations and decades, America’s bipartisan fiscal cluster-f**k has reached a kind of apogee (or nadir, depending on your point of view). Solving it requires a bipartisan solution, which means one almost certainly will not come. This, of course, makes the U.S.’s fiscal problem the world’s problem — which the world will solve via the blunt force of steadily shunning the dollar.

Warning about these challenges has long been a staple for economists. Five years ago, for example, I summarized my concerns about our coming fiscal problems, along with the interplay among them and unexpected longevity, inadequate thrift and saving infrastructure, mediocre education outcomes, and inadequate energy policy (see America’s Long-Term Challenges, May 21 and May 24, 2004). I was merely the latest in a long line of alarmists; for example, Pete Peterson famously noted more than 20 years ago that "America has let its infrastructure crumble, its foreign markets decline, its productivity dwindle, its savings evaporate, and its budget and borrowing burgeon. And now the day of reckoning is at hand" (see "The Morning After," Atlantic Monthly, October 1987). The Congressional Budget Office (CBO) has since 1997 – under directors from both sides of the aisle – carefully laid out ever-more depressing fiscal scenarios in its annual Long Term Budget Outlook, the latest of which appeared last week.

If this has been coming for decades, why haven’t politicians listened? Back to Berner:

The problem, ironically, is that the day of reckoning hasn’t come. This has seriously undermined doomsayers’ credibility and, more importantly, it has made the electorate and elected officials complacent about the threat from unsustainable fiscal policies. Some even proclaimed that "deficits don’t matter."

It’s Cassandra’s Curse: Predict the worst and have it not come true on schedule and in s democracy politicians ignore you, right up until they can’t and it’s (likely) too late.